Private companies: in pursuit of sustainable growth.

• Author: Heffes, Ellen M.

So maybe Tom Peters had it right after all. Back in the 1980s, business guru and author Peters and coauthor Robert Waterman, in their blockbuster In Search of Excellence, flipped the corporate pyramid 180 degrees, placing the customer on top. "Keep it simple, stupid," they wrote. What a concept!

When it comes to growing and sustaining a business, those that build strategies around putting their customers--and even their customers' customers--first are the ones that consistently sport growth charts with lines going one way over time: up.

The mantra "if you don't grow, you die" is likely the one that keeps senior managers awake at night. Whether a startup or multinational giant, public or private, every company has growth on its agenda. Even companies as huge as $75 billion Cargill Inc. or $90 billion Koch Industries Inc.--the two largest U.S. private companies in revenues--are constantly concerned with growth, and growth's partner: sustainability.

Private companies, many very small, are the norm in U.S. business. The American Institute of Certified Public Accountants (AICPA) reports that 99.7 percent of incorporated businesses in the U.S. are private companies; and, of a total of almost 13 million U.S. businesses tracked by Hoover's Inc., all but perhaps 15,000 are privately held.

So how do private companies sustain growth? What advantages or disadvantages do private companies have versus public companies for nurturing sustainable growth? And what are the prime drivers for growth in different businesses? Is it product/s or services? Is it the people and policies? Is it process? Or cash flow?

Financial Executive and Financial Executives Research Foundation sought to find out what strategies some of the top U.S.-based private companies employ that keep their growth at consistent double-digit numbers--even for some century-plus-old companies, signifying they'd weathered several economic storms.

We spoke with senior finance executives from Cargill, Carey International Inc., Koch, SAS and S.C. Johnson & Son Inc.--all brand-name leaders and in business for a combined 455 years. Four of the five remain strongly family-managed companies, but have gone far beyond the image of the non-sophisticated mom-and-pop shop. And while all are in different industries, dealing with different issues, they share one common concern: how to drive and sustain growth.

Indeed, discussions with these leaders have resulted in extrapolating six key principles relating to sustained growth that apply to all:

* Know your core capabilities -- and "stick to your knitting;"

* Hire world-class people -- and give them world-class benefits;

* Anticipate customer needs -- and be a solution provider;

* Use debt only for major expenditures -- if debt is used at all;

* Measure the profitability of every detail of every business; and

* Reinvest, reinvest, reinvest.

Know your core capabilities--and 'stick to your knitting'

Every business starts out with a purpose, but that original purpose can often get deflected as changes occur, both internally and externally. It's clear that knowing its core capabilities, and sticking to them, is central to Koch Industries' spectacular success. "You can't put us into one industry, because we represent many different types of industries," says Koch Executive Vice President and CFO Steve Feilmeier.

"We view ourselves as 'capability-bounded,' not 'industry-bounded.'" Indeed, he adds, "That is one of the benefits of being a private company; we can be in multiple industries if we think that those fit."

The foundation of the Wichita, Kan.-based company was formed in 1927 when Fred C. Koch invented a new method of refining petroleum, modern day "hydro-cracking," and expanded that around the globe. Thus, its roots are as an engineering company providing technology capabilities to other refining companies, and the root of its capability is refining process engineering.

Fast-forward to 2006, and you'll find a $90 billion company of 80,000 people in nearly 60 countries. It's in businesses related to refining and chemicals, pulp and paper and packaging, as well as having significant interests in minerals, fertilizers, ranching and financial services.

"The common theme of all our industries is owning, developing and adding value to process technology," says Feilmeier, who's been with Koch since 1997. All Koch's businesses have one thing in common, he explains: "We take large commodities that need to be processed by large sophisticated manufacturing or process facilities, and we convert those commodities for an end-user that requires a significant trading capability to take them to market."

For example, taking crude oil and processing that in a complex, multi-billion dollar refinery, then turning that into refined products, is viewed as being similar to taking trees (a big bulk commodity) and processing those into or through very large sophisticated pulp and paper operations into products that people use every day. Here, Feilmeier refers to the company's December 2005 acquisition of Fortune 500 company Georgia-Pacific, the maker of Dixie cups, Brawny paper towels, etc. A second substantial acquisition was bringing Invista into the Koch family from DuPont in 2004.

For Minneapolis-based Cargill, its roots as a grain-trading company have provided an anchor for growth in several directions. Founded in 1865, it moved to processing of grains as well as trading. By the 1950s and '60s, it went global, and after the fall of the Iron Curtain in 1989, it moved from North America, Europe and Japan into countries like Russia, China, East Germany, Poland and India.

Simultaneously, says Robert L. Lumpkins, its just-retired vice chairman (CFO until two years ago), "we moved from exclusively food commodities to financial assets," and he concedes to being "the guy who started us down that path." Additionally, energy was added as a trading commodity. During this phenomenal growth, he says, the process went from simply buying a commodity in "A" and selling it in "B," to changing the form of it, adding more value and more complex processing to micro ingredients. Thus, sums up Lumpkins, "We've added commodities...